Historic drought and energy crisis in Brazil

"We are on the verge of the limit," warned President Jair Bolsonaro, reduced last week to asking Brazilians "to turn off lights" to save electricity.

And it's not just a question of goodwill: unless you reduce the sails considerably, the bill will be higher for households in this immense country of 213 million inhabitants.

On Tuesday, the government announced a tariff increase of nearly 7% to cope with rising production costs with new energy sources and the need to import electricity.

"The country must use all its sources of production to meet demand. This is why costs have increased, and so have invoices", explains Luis Barroso, from the consultancy firm PSR Consultoria.

On Tuesday, a biomass plant and three photovoltaics were commissioned to increase energy production.

"Urgent effort"

While water reservoirs are at their lowest in the country's south-east and center-west - areas crucial for hydroelectric production - the Minister of Mines and Energy, Bento Albuquerque, has called for a " urgent effort ", in the public as in the private sector, to mitigate the risk of blackouts.

An electricity saving plan of 10% to 20% from September to April has already been implemented in the public administration.

Beyond the electricity problems, the worst drought in more than a century has already had major consequences for the agricultural sector, the engine of Brazilian growth.

Coffee production estimates have been revised downwards by 25% and other productions have been affected, both in terms of quantity and quality, such as corn, sugar cane, oranges or black beans, staple foods of most Brazilian families.

This crisis comes in a difficult economic context for Brazil, already facing a strong surge in inflation and still very affected by the coronavirus pandemic.

The specter of 2001

"If precipitation remains below average in the coming months, there will be an imbalance between supply and demand for electricity at peak times from October," said Nivalde de Castro, professor of a group of studies on the electricity sector at the Federal University of Rio de Janeiro.

In 2001, a similar crisis prompted the government to decree energy rationing.

This drastic measure is not on the agenda for the moment, but is not completely ruled out by the Bolsonaro administration, which must act quickly to prevent the situation from deteriorating irreversibly.

"It is fundamental to obtain short-term results, because every day of delay diminishes the impact of any measure aimed at mitigating the risks of lack of electricity supply", says Luis Barroso.

Some medium-sized cities have already started to ration water, such as Itu, in the state of Sao Paulo, where it has only been supplied every other day depending on the neighborhood since July.

The rise in the price of electricity and food caused a sharp increase in inflation, to 8,99% year-on-year in July, nearly triple the target set by the Central Bank (3,75%) for the year 2021.

"Energy has a significant weight in inflation, because its cost affects the entire production chain and the household budget", which puts a brake on economic growth, explains Nivalde de Castro.

On Wednesday, the statistics institute IBGE reported a decline of 0,1% of GDP in the second quarter, a disappointing result after an encouraging first quarter (+ 1,2%).